M G Ranade — the original swadeshi

A centennial tribute to the father of Indian economics

P R Dubhashi

Mahadev Govind Ranade, whose death centenary is being observed this year, is rightly looked upon as the “father of Indian economics”. His viewpoint on theoretical approach and practical policy lent special attributes to the study of economics in India and influenced the thinking and contribution of subsequent generations of economists. He was also, in the words of Prof D G Karve, “the prophet of liberated India”. His writings anticipated almost all the important elements of independent India’s plans for economic development.

Ranade’s address on the Indian political economy, delivered at the Deccan College, Pune, is rightly looked upon as a landmark in the history of Indian economic thought. He viewed economics as a part of the wider science of society. He was the first to adopt a wider, more realistic, sociological approach to economic science. Said Ranade, “in politics and social sciences, time, place and circumstances, the endowments and aptitudes of men, their habits and customs, laws and institutions and their previous history have to be taken into account.” Economic laws, therefore, do not have absolute validity. They are neither universal nor immutable. Ranade drew attention to the fact that even an English economist, J S Mill, had recognised the essential distinction between laws of production, which are universal, and laws of distribution, which are not. Ranade rejected the concept of “economic man” in as much as the pursuit of wealth is not the only goal of a human being. Moreover, more powerful than the individual and the competitive market environment are family customs, traditions and social norms which influence individual behaviour.

Ranade highlighted the many invalid assumptions of competitive environment. For instance, factors of production are not perfectly mobile as assumed in economic theory. He also pointed out that the non-English traditions of economic thoughts had greater relevance to Indian conditions. He therefore cited the thoughts and experiences of Germany, Italy, Netherlands and Hungary. While the English thought was committed to free trade, the non-English tradition supported aggressive economic policy for guiding the course of the economy for the benefit of the nation as a whole. The merits of free trade cannot be considered in isolation. If there is unfair competition, there have to be exceptions to the policy of free trade. If there are foreign aggressive monopolistic influences and subsidised competition, indigenous enterprise can be a victim. It then becomes necessary for the State to provide support.

It is astonishing how relevant this analysis is in the age of globalisation and to the modern day regime of the World Trade Organisation as realised by the Indian delegation at the recent Doha conference. The United States and European Union successfully provided huge subsidies to their agriculture while the plight of Indian small and marginal farmers and the concept of food security were given a short shift. The multinationals, with their wide influence, can easily overwhelm the comparatively small Indian enterprises struggling to cope with the world environment. But this advocate of swadeshi did not have a narrow concept of swadeshi. He advocated the use of modern machinery and welcomed foreign capital, leading to being accused as a traitor to India by the newspaper Kesari, edited by the fiery patriot Lokmanya Tilak.

Ranade was concerned about India’s deep and widespread poverty, which became the principle concern of our five-year plans fifty years after he left the scene. He attributed poverty in India to dependence on a single source of livelihood viz agriculture and that too, of the subsistence type, without the support of proper infrastructure. His main policy recommendations were therefore twofold — modernisation of agriculture and industrialisation. He attributed the backward plight of the agricultural economy to “a wretched system of credit and land tenure.” He found that the availability of institutional rural credit was non-existent. He, therefore, recommended the establishment of rural cooperative unions somewhat on the Riffeisen model, a concept which was further developed in other European countries. He also suggested the establishment of a moneylender’s bank. All the substantial moneylenders could pool their resources to set up such banks.

Ranade underlined the importance of the manufacturing sector in enhancing the economic status of a country and the standard of living of its people. He pre-empted Mahatma Gandhi in noting the negative role of the railways in killing local enterprise. Railways were the instrument for taking raw material from India to the ports for shipment to manufacturing enterprises in Britain and distribution of the imported products of those enterprises throughout the length and the breadth of the country.

He completely differed with the laissez faire approach to promotion of Indian industry followed by the colonial government. He felt that it was the State’s duty to play a pioneering role in the industrialisation of the country. He therefore suggested the establishment of a separate department of commerce and industry. It shows the far sightedness of Ranade that such a department came into existence at the centre after the attainment of independence. Ranade specifically suggested that government should undertake a survey of resources to identify opportunities for industrialisation. Like agriculture, industry too suffered from a lack of capital. Ranade suggested that the government make available loans to industry at low rates of interest. In order to create awareness about the importance of industrialisation, he set up the Industrial Association of Western India, which proved to be the harbinger of chambers of commerce and industry.

Ranade offered a broad perspective of comprehensive and systematic macro-economic policy in which the State should provide a constructive lead in modernising economic and social life. More specifically, he believed that the institution of property should be modified for social end. He advocated a policy of regulation and redistribution for promoting equity and social justice. He also had immense faith in India’s economic potential, observing that “natural attributes and aptitudes of our people, unlimited resources, our marvelous situation as the emporium of all Asia, these priceless advantages will secure success for us if only we endeavour to deserve it by striving for it.” Even today we seem to be lacking in our endeavour. Had Ranade been alive today, he would perhaps have suggested ways to overcome our weaknesses in public life.